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U.S. Judge Overturns State Conviction of Keating

A Federal judge today overturned the California state court conviction of Charles H. Keating Jr., the leading figure in the 1980's savings-and-loan debacle, ruling that jury instructions by the judge in the state court, Lance A. Ito, had been flawed.

Still, Mr. Keating will remain in prison while he appeals his conviction on Federal charges.

Judge John G. Davies of the Federal District Court here sided with Mr. Keating's lawyers, who said Judge Ito had erred in telling jurors that Mr. Keating could be convicted as a direct perpetrator of fraudulent bond sales to investors. Judge Davies also agreed that Judge Ito had erred in allowing the jury to convict Mr. Keating in 1991 for aiding and abetting a fraud.

Mr. Keating was sentenced to 10 years in prison for his role in selling risky junk bonds in the parent company of the Lincoln Savings and Loan Association of Irvine to investors at Lincoln who had previously owned certificates of deposits, which are insured by the Government. The bonds became worthless after the Government seized Lincoln, of which Mr. Keating was the chairman.

Under state law, he would have been released after serving half the 10-year sentence. Judge Davies came into the case after a California state appeals court upheld Mr. Keating's conviction on the state charges.

Mr. Keating was also convicted in Federal court of racketeering, fraud and conspiracy. He was sentenced to 12 years and 7 months in prison for those crimes, and must serve 85 percent of that sentence. That case is also being appealed.

The lead prosecutor in the state case, William Hodgman, said, "we are confident Davies is wrong."